What is a HELOC?
A home equity line of credit (HELOC) is a revolving line of credit secured by your home. Instead of receiving one lump sum, you're approved for a maximum credit limit and can borrow against it as needed. As you repay what you've borrowed, that credit becomes available again during the draw period.
Most HELOCs sit in second position behind your existing first mortgage. That's what makes them attractive when your first mortgage has a low rate: you keep that loan exactly as it is and add a separate line on top.
How your credit limit is set
Your line amount is driven mainly by your home's value and how much you already owe against it. Lenders use a combined loan-to-value (CLTV) limit — the total of all loans secured by the home divided by its value.
Formula: (Home value × maximum CLTV) − current mortgage balance(s) = estimated maximum line.
Example: a $600,000 home with an 80% CLTV limit supports $480,000 of total debt. With a $320,000 mortgage balance, the estimated line is $160,000.
Maximum CLTV varies by program, credit score, property type, and state. For example, Texas limits total debt on a homestead to 80% of its value. Your credit score and debt-to-income ratio also affect how much you're approved for. Lines through MyExpressHELOC™ are available up to $750,000.
Estimate your line with the HELOC calculator →
The draw period and the repayment period
A HELOC has two phases:
- Draw period. You can borrow, repay, and borrow again up to your limit. Many HELOCs allow interest-only payments during this phase, so your minimum payment is based on the interest on what you've drawn.
- Repayment period. You can no longer draw new funds, and the remaining balance is paid down over a set term with principal and interest payments. Your required payment usually rises when this phase begins.
The length of each period depends on the specific loan terms, so review your disclosures carefully. The HELOC payment calculator shows how much your payment could change between the two phases.
How HELOC rates work
Most HELOCs have a variable rate: an index (commonly the Prime Rate) plus a margin set when you open the line. When the index moves, your rate and payment move with it. Your margin depends on factors like credit score, CLTV, line size, and occupancy.
Some HELOCs let you lock a fixed rate on part of your balance. If rate stability is important, ask whether a fixed-rate option is available and what it costs. Learn more in the HELOC rates guide.
Fees and closing costs
HELOC closing costs are typically lower than a full refinance, but they aren't always zero. Depending on the program you may see an origination fee, a valuation fee, title and recording costs, and in some cases annual fees or early-closure fees. Your Loan Estimate or HELOC disclosures will list them. Lines of $400,000 or less through this program generally don't require a full appraisal, which can reduce cost and time.
Pros and cons
| Advantages | Things to watch |
|---|---|
| Keep your low-rate first mortgage | Variable rate can rise |
| Pay interest only on what you use | Payment increases when repayment begins |
| Reusable during the draw period | Your home secures the line |
| Often faster and cheaper than a refinance | Easy access can encourage overspending |
How to get a HELOC
- Estimate your equityUse a recent value estimate and your mortgage statement to see roughly how much room you have.
- Check eligibility with a soft pullSee what you may qualify for without affecting your credit score.
- Compare termsLook at the margin, fees, draw and repayment periods, and any fixed-rate options.
- Close and drawOnce approved and closed, draw funds as needed.